Insurance Principles and Concepts
Risk and how insurers measure it
Insurance transfers pure risk (loss or no loss) - never speculative risk (chance of gain), which is uninsurable. Insurable exposures share features: many similar units, accidental and measurable losses, a definite time and place, and severity that will not bankrupt the insurer. The law of large numbers lets actuaries predict aggregate losses; adverse selection (bad risks buying disproportionately) is countered with underwriting and classification.
Contract characteristics
A policy is a contract of indemnity (restore, not profit), utmost good faith (representations, warranties, concealment), adhesion (insurer drafts; ambiguities construed against the drafter), and aleatory (unequal exchange of value). Formation requires offer, acceptance, consideration, competent parties, and legal purpose. Insurable interest must exist at inception in property and, for most property coverages, at the time of loss as well.
Traps
Questions swap these constantly: a peril is the cause of loss (fire, wind); a hazard increases the chance or severity of loss - physical (icy steps), moral (arson for profit), morale (carelessness). Subrogation supports indemnity and prevents double recovery; it does not apply to life insurance. Waiver is the voluntary surrender of a known right; estoppel bars the insurer from asserting a right after the insured reasonably relied on its conduct. Breach of utmost good faith requires concealment or material misrepresentation, not an innocent slip.
Rule of thumb
If a fact would change the insurer's decision to accept or rate the risk, treat it as material and disclose it. Worked example: an applicant who answers "no losses" but had a paid fire claim has made a material misrepresentation supporting rescission; saying the roof is 8 years old when it is 10 is usually immaterial.